Speeches by Richard W. FisherAustin, Texas | February 27, 2007

Remarks to the Headliners Club

I am delighted to be here at the
Headliners Club and in Austin tonight. It is good to
see so many people I have worked with and yet still
admire: Frank Gavin and Jim Steinberg are but two. I
am delighted and honored that Elspeth Rostow is here.
It is even good to see George Shipley.

Coming in from the airport, I
actually saw that fabled bumper sticker calling on voters
to “Keep Austin Weird.” It reminded me of
the old saw that Washington is 10 square miles surrounded
by reality. Austin might be justly proud to consider
itself 266 square miles surrounded by normality. But
I know better. As George is well aware, about the only
thing I accomplished when I ran for the U.S. Senate
in 1994 was that I managed to have a dip cone in every
Dairy Queen in Texas. I know almost every nook and cranny
of this state. And I know there is nothing normal about
Texas.

Take my wife’s family, for
example. Her great-great grandfather was William Miles.
He hailed from Nip ’n Tuck, Texas, a little town
near what is now Longview in East Texas. He served gallantly
in the Mexican Wars and then, after a substantial interlude,
joined the 14th Regiment of the Texas Unmounted Cavalry—they
had no horses but called themselves “cavalry”
nonetheless—and went off to fight for the Confederacy.
He had his arm shot off in battle, was discharged and
sent home. To get back, he swam across the Mississippi—no
small feat for a one-armed man. He is memorialized by
the nickname “Sidestroke” in the family
annals. Old William Miles walked back to Nip ’n
Tuck and became a dirt farmer.

He was a tough old bird. Having
come home from the “War of Northern Aggression,”
he could not afford a mule, so he hitched a plow to
his six daughters—there was a seventh but she
got smart, married a Yankee and was promptly disowned.
William Miles never spent a dime; he saved every penny
he earned and prospered handsomely. He died in 1910.
His will instructed an executor to auction off all he
had accumulated—his house, his equipment, everything
but his remaining daughters—so his net worth could
be calculated in hard currency.

All this is captured on his tombstone
in the Gum Springs graveyard near Longview. His stone
records the dates of his and Nancy Miles’ births
and deaths, and the dates of his service in both the
Army of the U.S.A. and the Army of Jefferson Davis.
On the back of the stone, for all the world to see,
are carved the words “Value of my estate $44,
378.34.” That’s roughly $956,000 in today’s
dollars. That’s the good news. He died a rich
man. The bad news is that his will required his daughters
to buy everything back that was sold in his estate sale.

You cannot tell me that Austin
has a corner on the market for being “weird.”

Every now and then, I like to
pick up T. R. Fehrenbach’s wonderful little tome
The Seven Keys to Texas. It contains keen insights
about our culture, even if he was a Princetonian and
it was written in 1983. One of his essential points
captures the bottom line of iconic Texas characters
like William Miles. If memory serves—and I am
paraphrasing here—Fehrenbach argued that the rest
of the country used to be characterized by faceless
men running big organizations, whereas Texas was operated
by big men running faceless organizations. Update this
for gender, and I think the remnants of that culture
still remain, embodied in people like Ann Richards,
Jim Baker, Bob Bullock, Lyndon Johnson, Elspeth Rostow
and countless others, past and present, in the public
and private sectors, in arts and academia and elsewhere.
Many of them may be a bit too strong for some and a
little quirky for outside observers, but they embody
a spirit that is uniquely and beautifully Texan.

Fehrenbach defined Texas as a
state of mind. As his book jacket noted, it may not
be an entirely rational state of mind, but it sure as
heck works. It is what makes Texas so fantastic. It
forms the cultural yeast that makes for a vital and
vibrant economic engine.

And vibrant it is.

In 2005, Texas generated more
than $1 trillion in output. Measured in dollars, it
is more than Brazil produced and a smidge less than
Canada did. It is 25 percent more than India produced.
Imagine that. The 24 million people of the Lone Star
State produced $200 billion more in output than the
1.1 billion people of India.

We export more than California.
We manufacture more than New York. We have more Fortune
500 companies headquartered here than either of them.

Last year, employment grew twice
as fast in Texas as it did in the rest of the United
States. Construction payrolls grew at five times the
U.S. rate. We added 26,000 net new factory jobs in 2006,
while the nation’s manufacturers posted an overall
loss of 110,300 jobs. The energy sector grew its workforce
by over 13 percent, well outpacing the rest of the country’s
7.5 percent rate. Our energy sector still only employs
about 2 percent of our workforce. Texas excels at the
high-value-added end of the equation: Our output per
worker in computers and electronics has overtaken California’s.

With the nation’s economic
growth slowing, you would expect ours to tamp down a
bit. Yet our latest Texas Manufacturing Outlook Survey,
released yesterday, showed that momentum is continuing
to build in Texas factories and that businesses headquartered
here remain optimistic about the future.

In December, the state’s
unemployment rate was 4.5 percent, the lowest it has
been since 1982. Employment is robust in Texas. And
it will remain so, assuming the Perez sisters and the
good people who work at Las Manitas—in my book
the best eatery west of the Maginot Line—continue
operating.

At last count, the state’s
population grew by more than 579,000 souls in a year.
That’s 65 percent of a Detroit, three-quarters
of a San Francisco, almost the entire population of
Minneapolis and St. Paul combined, an entire Denver,
a Kansas City, a Boston proper, a Washington, D.C.,
and more than the entire population of functioning OU
alumni. In one year. And yet we created enough jobs
to bring unemployment down to 4.5 percent.

We are blessed with being participants
in a remarkable economic machine. So, what role do the
1,300 employees at the Federal Reserve Bank of Dallas
and its branches in Houston, San Antonio and El Paso
play in all this?

First, we run a business that
keeps the payments system and our district’s banks
working to meet the needs of our citizens. We pump money
through the veins and capillaries of Texas’ cardiovascular
system, so that her economic muscles can flex and grow.

Last year, the Dallas Fed processed
940 million paper checks worth over $1 trillion. We
processed more than 700,000 electronic checks per day.

Also, 6.1 billion banknotes—ones,
twos, fives, tens, twenties, fifties and hundreds—passed
through our vaults and onward to banks and ATMs last
year. That’s $105 billion in cash. The notes are
scanned by machines that sort 90,000 of them an hour
and pluck out $517 million worth of worn currency each
month for shredding.

A dollar bill, by the way, costs
5.4 cents to make at the Bureau of Engraving and Printing.
It lasts 18 months before we shred it and send it to
money heaven. A $20 bill lasts four years. A $100 bill
lasts nine years.

We store all those bills in our
five-story-deep vault under the 1,204,000 square feet
that is the footprint of our Dallas property and in
the newly constructed vault in Houston. And we handle
a lot of coins. If you ever need to wash your car or
do your laundry, call me. We have some 209 million quarters
in our vaults.

In addition to processing checks
and cash, the Dallas Fed supervises and regulates 38
state member banks, 450 bank holding companies, and
29 agencies and representative offices of foreign banking
organizations in our district. Our bank “sup and
reg” people in Dallas are some of the most experienced
in the nation. You know why, if you have even a modicum
of memory of the banking debacle of the 1980s.

One of the best folkloric moments
in Fed history came about when my predecessor two iterations
ago, a wonderful man named Bob Boykin, told then Fed
Chairman Paul Volcker of the massive excavation taking
place in Dallas for building the Crescent Court complex.
“Mr. Chairman,” Bob said, “in Dallas,
we have just dug the deepest hole in American history.”
To which Volcker responded: “Literally or figuratively?”

In addition to feeding the payments
system and making sure the banking system is sound,
we work hard to promote financial literacy in our district,
conducting workshops for high school teachers and educators
and supplying straightforward reading and interactive
materials with titles like Building Wealth,
so that Texans will be better equipped to manage, safeguard
and grow their money. We also expend a great deal of
effort promoting and encouraging community development
throughout our district.

And we conduct research on the
U.S. economy and on the effects of globalization on
the gearing of the economy and its consequences for
monetary policy. Our researchers make up one of the
nation’s finest in-house teams of economists,
a team that includes Finn Kydland, the 2004 Nobel Prize-winning
economist who has been an associate of our Bank for
some 14 years now.

We run these business lines at
a cost that is less than what we earn in fees and on
our allocation of the returns on the $35 billion in
assets on our balance sheet. You are looking at one
of the few people on the planet—there are 12 such
men and women serving as presidents of the Federal Reserve
Banks scattered around the nation—who is privileged
to run a government business that handed over $1 billion
to the U.S. Treasury last year after covering our expenses
and paying dividends to our shareholders.

Of course, the sexiest part of
what we do—judging by the amount of voyeurism
it incites in the press corps, bloggers and other observers—is
the policymaking process. As I mentioned, there are
12 Federal Reserve Banks. Eight times a year, we sit
at a table with the seven governors of the Federal Reserve
System in what is called the Federal Open Market Committee,
or FOMC. That is where the base interest rate—the
federal funds rate—is chosen and where monetary
policy is set. It is done by consensus, with each participant
taking part in a discussion presided over by the chairman,
Ben Bernanke, who is as good and fair and smart a man
as I have had the pleasure to know.

Each person at the table, starting
with the 12 Reserve Bank presidents, is called on to
give his or her view of the economy from their various
perches. Then another round ensues, and each is asked
for a recommended policy course of action: Should we
hold rates steady or raise or lower them, and why? We
debate language for a written statement that expresses
the committee’s view. And then a tally of the
preferences of the voting members is taken, and the
deed is done. The vote and the statement on the vote
are released by 2:15 in the afternoon.

What guides us in those discussions?
An earnest intention to deliver on our congressional
mandate to conduct monetary policy so as to provide
sustainable noninflationary employment growth.

Of course, some people cast negative
aspersions on the Fed. They think we are a collective
of sourpusses who get some perverse pleasure out of
being tight with money, like old William Miles was.

One of our fabled chairmen, William
McChesney Martin, addressed this perception when he
was nominated on the Alfalfa Party ticket to run for
the presidency of the United States.

Some of you may not know about
this group. It is a club that meets once a year in Washington
to drink and be merry, so called because the alfalfa
plant will drink anything, anywhere. They nominate a
presidential candidate every time they meet, who, without
having to wait for the inevitable outcome, is immediately
inducted into the Harold Stassen Society—a tribute
to the perfect presidential election record of Mr. Stassen.
Candidates are expected to live up to the motto “Veni,
Vidi, Defici”: I came, I saw, I lost—kind
of like my Senate experience. Some great Texans have
headed up the Alfalfa ticket. Among them were John Connally,
Bob Strauss, Lloyd Bentsen, and both Bush “41”
and “43,” well before they were elected
president in the real deal.

This year, it was a former cowgirl
named Sandra Day O’Connor. In 1966, it was Bill
Martin, who had been chairman of the Federal Reserve
System for 15 years by then, who received the Alfalfa
nomination.

In his acceptance speech, which
is on file at the LBJ Library by the way, Martin said
that as Federal Reserve chairman he had long taken his
cues from the German philosopher Goethe, who, he pointed
out, said that “people could endure anything except
continual prosperity.” Therefore, Martin announced,
if he were to adopt a political platform as a presidential
candidate, he planned to “make life endurable
again, by stamping out prosperity.”

“I shall conduct the administration
of the country,” Martin said, “exactly as
I have so successfully conducted the affairs of the
Federal Reserve. To that end, I shall assemble the best
brains that can be found at home and abroad, ask their
advice…and completely confound them by following
all their conflicting counsel.… I say to you that
America is at the crossroads. And I shall do everything
I can to keep it there.”

I assure you that those of us
who have the privilege of providing “conflicting
counsel” at the FOMC table, including yours truly,
have no desire to keep our economy “at the crossroads.”
Day in, day out, we strive to keep it moving, faithful
to our dual mandate, so that we might engender prosperity
both for Texas and for the nation.

With that, I rest my case. I thank
you for the dinner and drinks you are about to serve.
And I conclude with a quote from John O’Connor,
Justice O’Connor’s husband, who once reminded
me, “You need not drink to enjoy yourself, but
why take the risk?”

About the Author

Richard W. Fisher
is president and CEO of the Federal Reserve
Bank of Dallas.

The views expressed by the author do not necessarily reflect official positions of the Federal Reserve System.